Fusion Finance Ltd. share price target

Post the management change in Mar’25 with Mr. Sanjay Garyali taking the charge as CEO of Fusion Finance, the company has focused on building blocks for a sustainable and resilient portfolio.

Fusion Finance (“Fusion”) reported a net loss of ~INR1.65b in 4QFY25 (vs MOFSLe loss of INR1.4b). FY25 loss stood at INR12.2b (vs. PAT of INR5b in FY24).

Fusion reported a net loss of ~INR7.2b in 3QFY25 (vs. MOFSLe loss of INR2b), as NIM contracted due to interest income reversals and the reversal of all net Deferred Tax Assets (DTA) to date.

Fusion Finance (Fusion) has bolstered its balance sheet by upping its provision cover across Stage-1/2/3 assets and de-recognising interest income on Stage-3 assets.

Fusion Microfinance (Fusion) reported a net loss of ~INR3.1b in 2QFY25 (vs. MOFSLe loss of ~INR1.8b) due to significantly high credit costs.

Fusion Finance had posted disproportionately higher stress/LLP in 1Q, and indicated guiding on incremental LLP after assessing the asset quality trend in 2Q.

Fusion Microfinance’s (Fusion) Q1FY25 earnings were marred by elevated credit cost at INR 3.5bn vs INR 1.2bn QoQ. This was led by it proactively moving 55k customers with exposure of INR 2.21bn.

Fusion MFI continues to report strong earnings with PAT at Rs1.33bn and RoA
at 4.7%, mainly led by continued margin expansion and higher fees. However,
LLP remains elevated at 4.7%, primarily due to stress in the state of Punjab,
specific PCR build-up, and incremental management overlay of Rs0.2bn. T

? Fusion’s 4QFY24 PAT grew 16% YoY to ~INR1.33b (9% miss) because of
elevated credit costs. NII grew 31% YoY to ~INR3.6b, while PPoP also grew
31% YoY to ~INR2.9b (7% beat). FY24 PAT grew 31% YoY to INR5.1b

Fusion Microfinance (Fusion) has sustained its strong financial performance in Q2FY24, as reflected in it sustaining ~5% RoA and >20% RoE during the past six quarters with AUM crossing INR 100bn mark. However, collection efficiency (ex arrears) at ~95.5% is one of the lowest within the MFI space and management attributes lower collections to some challenges it has faced in states like Punjab, Haryana, Rajasthan and Gujarat.

In its FY23 annual report, Fusion Microfinance (Fusion) has highlighted its commitment towards becoming a trusted financial service provider to rural India and also sustain industry-leading profitability going forward. While microfinance continues to be the core of the business, MSME vertical is gaining strong traction as reflected in INR 2.2bn disbursements in FY23, taking MSME AUM to INR 3bn as on Mar’23.

Fusion Microfinance (Fusion) continues to deliver industry-leading profitability in Q1FY24- as reflected in it sustaining ~5% RoA and >20% RoE during the past 5 quarters. This is an outcome of its diversified operations with no single state contributing >20% of AUM, rural portfolio accounting for 93%, quality underwriting, proactive risk management and deep understanding of demographics in states where it operates.

The Union ministry of commerce is in talks with regulators and other departments to put in place systems that will level the field between exports through e-commerce and traditional channels, when it comes to tax refunds.

Fusion Micro Finance (Fusion) continues to lead the industry in terms of profitability and growth – as reflected in its RoA and RoE sustained at >4% and >20% respectively in each of the 4 quarters of FY23 despite creation of a provisioning buffer of Rs0.3bn in
Q4FY23.

We met the apex management, including MD & CEO Mr. Devesh Sachdev, of Fusion Microfinance (Fusion) to understand the prevailing business trends in microfinance sector and how the company is placed. Management remains upbeat about growth sustainability and healthy profitability given that industry dynamics continue to be favourable.

Fusion Microfinance’s (Fusion) Q3FY23 / 9MFY23 financial performance was once again the best in industry (within NBFC MFI space) as reflected in it sustaining >4% RoA and >20% RoE in each of the 3 quarters of FY23-TD. This is an outcome of its diversified operations with no single state contributing >20% of AUM, the rural portfolio accounting for 93%, quality underwriting, proactive risk management and deep understanding of demographics in states where it operates.

Fusion Micro Finance (Fusion) is a leading NBFC-MFI with AUM of Rs80bn (>50% CAGR FY17-22) and borrower base of 3mn (>30% CAGR), implying average outstanding per borrower of ~Rs25,000 (one of the lowest in MFI space) as on Sep’22.